• Eurozone bourses have rebounded off worst levels but remain softer overall; US equity futures have recouped most of the earlier losses
• Fed's Bostic noted that recent data and the resurgence of COVID call for more time before a decision on reducing stimulus for the economy
• Chinese inflation data showed softer than expected consumer prices but firmer factory gate prices
• China is to allow Evergrande (3333 HK) to reset debt terms to ease its cash problems, according to reports
• In FX, the DXY heads into the US session softer and closer to 92.50, USD/JPY dipped under 110.00 and GBP/USD reclaimed 1.3800
• Looking ahead, highlights include US IJC, Weekly DoEs, ECB Policy Decision, ECB’s Lagarde, Fed’s Evans, Daly, Bowman, Williams, Kaplan, Kashkari, Rosengren, BoC’s Macklem, and supply from the US

CORONAVIRUS UPDATE

Japan's government confirmed it is seeking an extension to the state of emergency for Tokyo and other prefectures through September 30th and it was also reported that Japan is to cut quarantine to 10 days for the vaccinated. (Newswires/Nikkei)

Australia's New South Wales reported 1,405 new locally transmitted COVID-19 cases and its Premier announced that restrictions will be relaxed when 70% of adults are fully vaccinated although some parts of regional New South Wales will end lockdowns on Saturday. (Newswires)

ASIA

Asia-Pac stock markets were mostly negative as the downbeat mood rolled over from the US and Europe amid lingering global growth concerns, recent Fed taper rhetoric and China's ongoing regulatory crackdown. ASX 200 (-1.9%) declined beneath the 7,500 level and was heavily pressured by the losses in mining names, with sentiment also clouded by the rampant COVID-19 infection rates and despite the announcement by NSW Premier Berejiklian of the recovery road map whereby restrictions will be relaxed when 70% of adults are fully vaccinated but with some parts of regional New South Wales are to end lockdowns on Saturday. Nikkei 225 (-0.6%) was subdued amid currency headwinds and with Japan confirming plans to seek an extension of the state of emergency for Tokyo and other areas through to at least month-end although other reports suggested November was being considered for the easing virus restrictions. Hang Seng (-2.3%) and Shanghai Comp. (+0.5%) traded mixed with notable losses in tech names including Tencent after the government and cyberspace regulator summoned gaming companies to instruct them to implement measures against gaming and entertainment, as well as warned of severe punishment for those not implementing regulations. China also reiterated it is to crackdown on illegal behaviour in the ride-hailing industry and banned private tutors from offering courses through online platforms, while debt concerns surrounding Evergrande and mixed inflation data that showed softer than expected consumer prices but firmer factory gate prices to suggest an uneven recovery, further added to the cautious mood. Finally, 10yr JGBs were steady with only minimal gains despite the mostly negative risk tone across the region and amid mixed results at the 5yr JGB auction in which a higher b/c was counterbalanced by lower accepted prices.

China is reportedly set to halt approval of new online games; it is unclear how long the approval halt will last, according to SCMP citing sources. Plans were reportedly revealed at a meeting between Chinese officials, Tenecent (700 HK), NetEase (9999 HK). (SCMP)

China-Hong Kong southbound bond and wealth links are to begin in a few days. (Newswires) The launch of China’s southbound bond trading link will likely boost liquidity in Hong Kong and USD-denominated bonds, analysts have said.

China is to allow Evergrande (3333 HK) to reset debt terms to ease its cash problems, according to reports. (Newswires)

S&P has lowered the long-term issuer credit rating on China Huarong and China Huarong International to "BBB" from "BBB+"

PBoC injected CNY 10bln via 7-day reverse repos with the rate at 2.20% for a net neutral daily position. (Newswires)PBoC set USD/CNY mid-point at 6.4615 vs exp. 6.4629 (prev. 6.4674)

• Chinese CPI MM (Aug) 0.1% vs. Exp. 0.5% (Prev. 0.3%)
• Chinese CPI YY (Aug) 0.8% vs. Exp. 1.0% (Prev. 1.0%)
• Chinese PPI YY (Aug) 9.5% vs. Exp. 9.0% (Prev. 9.0%)

US Secretary of State Blinken tweeted that Hong Kong authorities must end ongoing threats against civil society and individuals with differing political viewpoints, while he added that arrests of Tiananmen vigil leaders are politically motivated and a blatant abuse of law. (Twitter)

CENTRAL BANKS

Fed's Bostic (2021, 2024 voter) believes the Fed will be able to taper QE this year, but he doesn't expect a decision to do so will come at the September FOMC meeting; still eyes a late 2022 rate hike. Bostic also noted that recent data and the resurgence of the coronavirus pandemic call for more time before a decision on reducing stimulus for the economy. Bostic added that when tapering occurs, recommended to do as soon as possible. (WSJ)

Fed's Kaplan (2023 voter) said the coronavirus resurgence is impacting travel, hospitality and leisure, while he lowered his FY GDP growth forecast to 6.0% from 6.5% and expects 2022 GDP at 3.0%, as well as slower job growth ahead. However, he also stated that he would support tapering in October if there is no fundamental change to the outlook by the September meeting and that Fed's asset purchases are not well suited to the current situation, while he would like to taper at the earliest opportunity. (Newswires)

PBoC has asked that average loan rates for SMEs be around 5.5%; aims to help lower cost of financing to SMEs; will be issuing an additional CNY 300bln in small business relending project. (Newswires)

BoK is to expand special lending program to small businesses impacted by the pandemic to KRW 6tln till March next year. BoK also stated that it will gradually adjust monetary policy amid inflationary pressures and that increasing policy rates will help reduce household debt. (Newswires)

BoJ notes of a review of the benchmark ratio used to calculate macro add-on balance in current account balances at the Bank of Japan. (Newswires)

Riksbank Governor Ingves says inflation picture is still unchanged from summer; doesn't see any reason to change plans for balance sheet. (Newswires)

US

The White House is said to be planning to lower prescription-drug prices; the plan backs legislation from congressional Democrats for federal government to negotiate for drug prices in Medicare, and pass those lower costs along to the private sector. (WSJ)

Google (GOOGL) is reportedly under renewed EU antitrust investigation, "this time over possibly forcing device manufacturers to use Google Assistant as the default voice assistant on Android devices", according to Mlex's Wilkin. (Twitter)

Ford (F) anticipates charges of around USD 2bln as it restructures its Indian operations. (Newswires)

UK/EU

UK's energy regulator Ofgem has warned that UK household energy bills will be affected by rising prices of fossil fuels globally. (BBC)

German Federal Ministry of Finance and the Federal Ministry of Justice in Berlin are said to have been raided by the Osnabrück public prosecutor's office. A special customs unit is said to have withheld information about money laundering from the police. (Newswires)

German election poll: SPD 25% (unch) and CDU/CSU 21% (unch.), according to Kantar. (Newswires)

EQUITIES

Eurozone bourses have rebounded off worst levels on ECB day but remain softer overall (Euro Stoxx 50 -0.5%; Stoxx 600 -0.4%) after experiencing pronounced downside at the cash open. The UK’s FTSE has failed to stage a rebound of a similar degree amid Sterling dynamics, and with mixed messaging out of the BoE regarding the conditions for a rate hike – which at face value could be perceived with a hawkish tilt – FTSE 100 futures tested 7k to the downside. US equity futures, meanwhile, trade softer across the board but in tighter ranges and off earlier lows after early weakness seeped from Europe – with the more cyclically-tailored RTY (-0.5%) narrowly lagging its ES (-0.3%), NQ (-0.3%) and YM (-0.3%) counterparts. There has been little in terms of fresh fundamental drivers behind the rebound in EZ cash/futures and US equity futures. However, the waters were choppy in early trade and in the run-up to the ECB (full preview available in the Newsquawk Research Suite), whilst participants also eye the weekly US jobless claims alongside a plethora of Fed speakers. Sectors in Europe are predominately in the red with clear underperformance experience in the Travel & Leisure sector, with losses led by easyJet (-10.8%), who announced a rights issue at a discount in a bid to raise USD 1.7bln. Furthermore, the airliner also announced that the Board recently received a prelim takeover approach (speculated to be Wizz Air), which was evaluated and then unanimously rejected. The bidder has since confirmed it is no longer considering an offer for the Co. Back to sectors, Oil & Gas and Retail also reside towards the bottom of the bunch, whilst Real Estate, Autos & Parts post the shallowest losses. In terms of individual movers, Morrisons (+0.2%) is cushioned after topping H1 revenue forecasts, whilst sources via UK press suggested a bidding war for the Co. could take the final offer above the highest current bid of GBP 7bln. Elsewhere, RWE (+1.5%) is bolstered amid reports. that activist ENKRAFT bought over 500k shares of the Co. and is calling for the Co. to divest its brown coal assets. Finally, Sanofi (-1.8%) holds onto losses as its phase 3 PEGASUS trial evaluating rilzabrutinib did not meet its primary or key secondary endpoints.

FX

USD - The Buck is waning after reaching new recovery highs on Wednesday and perhaps overextending its retracement when setting fresh m-t-d and/or multi-week peaks. In index terms, the DXY has slipped back into a narrower 92.762-528 range compared to yesterday’s 92.864-472 extremes, and the yield backdrop is less supportive in wake of another strong 10 year T-note auction, while the latest Fed Beige Book does little to enhance the prospects for tapering at the September FOMC as growth moderated last month, largely due to Delta-related factors. However, the Greenback and markets in general get more jobs data to assess substantial progress via claims, plus a raft of Fed speakers flanking the final leg of refunding in the form of Usd 24 bn long bonds.

JPY/GBP/NZD/CHF/AUD - It’s a close call, but the Yen is just outperforming a group of five majors and gleaning a bit more from the softer/flatter US Treasury dynamic allied to still suppressed levels of overall risk appetite. Hence, Usd/Jpy is retesting support and underlying bids sub-110.00, while Sterling is probing 1.3800 and rebounding further from lows under 0.8600 vs the Euro in response to BoE Governor Bailey’s hawkish MPC rate revelations in front of the TSC. Elsewhere, the Kiwi is trying to form a base around 0.7100, but gaining momentum against the Aussie as the Aud/Nzd cross inches nearer 1.0350 compared to 1.0450+ at one stage in the immediate aftermath of the RBA, and Aud/Usd lags Nzd/Usd between 0.7383-47 parameters. Meanwhile, the Franc has clawed back some ground conceded following verbal intervention from SNB’s Zurbruegg, with Usd/Chf back beneath 0.9200 and Eur/Chf towards the bottom of a 1.0870-97 band.

EUR/CAD - The Euro is holding above 1.1800 into the ECB and awaiting direction from the GC with all eyes on PEPP developments amidst very diverse opinions regarding the pace of purchases in Q4 and what happens when the emergency QE envelope is sealed at the end of March 2022 - check out the Research Suite for a full preview of the event. Note, options pricing has ticked up again for Eur/Usd, to 47 pips, and expiries are stacked mostly to the topside, bar 1 bn at the 1.1750 strike that may come into play on a very dovish outturn - see 7.27BST post on the Headline Feed for details and other G10 pairings that have hefty option expiry interest rolling off at the NY cut today, including Aud/Usd and Usd/Jpy. Back to Central Bank impulses, the Loonie has regrouped after the BoC and is pivoting 1.2700 ahead of Governor Macklem’s post-policy meeting speech and Canadian jobs data on Friday.

SCANDI/EM - The Nok is straddling 10.3000 against the Eur, as disappointing Norwegian monthly mainland GDP growth offsets some traction derived from the firm line in Brent beyond Usd 72/brl, while the Cny and Cnh are taking mixed Chinese inflation largely in stride along with latest Chinese efforts to crack the whip on tech and keep a lid on commodity prices.

FIXED INCOME

Gilts mustered a bit more recovery momentum to get within 3 ticks from closing the opening Liffe gap between 128.00 and 128.17, but reversed course relatively quickly to hit a marginal new 127.82 low alongside flagging Short Sterling futures that have now been as much as 6 ticks adrift. Wednesday’s hawkish BoE twist is reverberating, and finally filtering through to the Pound, while Bunds are steadier along with their Eurozone peers pre-ECB after rebounding from 171.59 to 171.81 at best. Elsewhere, US Treasuries are sitting quite tight ahead of IJC, a posse of Fed officials and the Usd 24 bn 30 year refunding.

COMMODITIES

WTI and Brent front-month futures are choppy and caged in tight ranges, albeit the benchmarks came off best and worst levels in tandem with stocks. WTI October tested USD 69/bbl (vs high USD 69.55/bbl) while Brent November briefly dipped under USD 72.50/bbl (vs high 72.94/bbl). News flow for the complex has remained light as all eyes turn to the ECB and Fed commentary slated for the rest of the week. In terms of fundamentals, crude production in the Gulf of Mexico is slowly coming back online – but still, some 77% from GoM production remains shuttered (vs prev. 79%), according to the BSEE. Aside from that, supply updates have been minimal post-OPEC+, with attention in the East now turning to any developments on the Iranian nuclear deal. On the demand side, the COVID situation in APAC remains a concern, and Japan confirmed the extension of the Tokyo State of Emergency, whilst the latest EIA STEO cut its 2021 world oil demand forecast by 370k BPD to 4.96mln BPD Y/Y increase but raised forecast for 2022 world oil demand growth by 10,000 BPD to 3.63mln BPD Y/Y increase. Note, OPEC+ last week revised its 2022 oil demand growth up to 4.2mln BPD (prev. 3.28mln BPD), according to sources. In terms of data, the delayed Private Inventory report yesterday was largely bearish, but prices were unfazed. As a reminder, the DoEs today will be released at 16:00BST/11:00EDT. Over to metals, spot gold and silver were trading within narrow bands overnight and throughout the first half of the European morning before the softening Dollar provided prices with a mild lift. From a technical standpoint, the yellow metal sees its 21 DMA (1,794,85/oz) and 50 DMA (1,797.85/oz) in proximity. In terms of industrial metals, LME metals are firmer across the board with nickel and copper outpacing, with some tailwinds felt by the receding Buck. Aluminium hit a fresh 13yr peak amid the ongoing supply woes emanating from the coup in Guinea. Conversely, Dalian iron ore futures saw renewed weakness overnight – with traders citing the dampened demand from steel mills after China lowered its steel output target last month.

US Private Energy Inventory Data (bbls): Crude -2.9mln (exp. -4.6mln), Cushing +1.8mln, Gasoline +6.4mln (exp. -3.4mln), Distillate -3.7mln (exp. -2.6mln). (Newswires)

Codelco's Andina copper workers are reported to have voted to extend strike. (Newswires)

GEOPOLITICAL

US Secretary of State Blinken said he had a productive meeting on Afghanistan with over 20 allies and partners, while he suggested there was strong unity in making clear we expect the Taliban to live up to commitments on inclusivity, safe passage, human rights and combatting terrorism. (Twitter)

North Korea conducted a military parade for the anniversary of its founding. It was also reported that Chinese President Xi congratulated North Korean leader Kim and told him that China is willing to push forward with North Korea ties. (Newswires/Yonhap/AFP)